Thursday, February 3, 2011

They Really Don't Know What They Are Doing!

I try to refrain from being too critical of our elected leaders, as they are dealing with so many complex issues, and most are, like the rest of us, giving it their best try. But in the case of HB2410, I have to say that they literally do not know what they are doing. Some have admitted to me that they to not understand the bill, but they vote for it.

VEA, by virtue of a long-held position of our board of directors, supports the exclusive maintenance of the defined benefit plan for school employees. HB2410, which is now before the full House, creates an optional defined contribution (DC) plan for future hires.

One of the reasons for considering this bill is the $17 billion VRS unfunded liability, and the other is the hope of controlling future costs of the system. HB2410 does not change the unfunded liability of the current plan. The Fiscal Impact Statement (FIS) says, “… current unfunded liabilities for the DB pension and retiree healthcare benefits will remain substantially unchanged.” Further, the FIS says HB2410 will increase the cost of the current plan - “As fewer hires join the current DB [defined benefit] plan, the payroll base under this plan would begin to decline immediately. Since the payroll base is used to fund the DB system’s unfunded accrued liabilities (UAL), the financial burden as a percent of payroll will increase.” The FIS also says it “will increase the contribution required to the DB plan, at least in the near term.”

In plain English this means that the bill will weaken the current plan, make the current plan more expensive and do nothing to address the unfunded liability.
The FIS also says, “It will take many years before the System may begin to realize any benefits anticipated by creating a DC plan.”

Adequate deliberation of the question before the House should include the consideration of the impact of the plan on future retirees.

The DC model in the 2008 JLARC report on State Compensation according to PricewaterhouseCoopers would offer 52% of the benefit of the current plan. The House canot tell us what the ultimate value to retirees of the plan in HB2410? Should they vote without knowing the answer to this question?

Asking a 22 year-old new hire, who knows nothing about the virtues or risks of the various plans, to make an irrevocable election of tremendous consequence is unwise and unfair.

This is too big an issue to address in this short session. There is over $50 billion in the fund – retirees will be paid. The actuarial horizon of the unfunded liability is 85 years. Please urge your Delegate to vote to defeat HB2410 and to study a bit more before making this decision which is of tremendous consequence to future employees.